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Strategic Global Intelligence Brief for May 1, 2020

By Chris Kuehl, Ph.D., NACM Economist

Short Items of Interest—US Economy

Stimulus Failures
The use of stimulus such as additional spending and lowered interest rates is the standard reaction to a recession. The basic idea is to get people spending money so there is economic growth sufficient to revitalize the moribund business community. The U.S. has dumped about $3 trillion into the economy to do just that. Why is it not working as hoped? The simple answer is there is no place for the consumer to spend that money. The shutdown has been universal. It has decked the business community. Right now, the consumer is saving at about a 20% rate. Normally, this same consumer is saving at about a 3% rate. Until the lockdown ends, there is no place for that stimulus money to go. It just sits on the sideline. The hope is that opening back up in May and June will allow that cash to start flowing as planned.

Small Business Losing Ground
Speed is of the essence. It is the one thing that can't be offered by the bureaucracy. The help coming from the government has been rolling out as it usually does as there are many steps involved. The larger companies have the reserves to manage the wait, but the small business community is not in that position. The majority of these businesses are living month to month and can't survive this kind of closure for long. They have to get this aid right away. That is not going to happen for many of them. May is going to be a crucial month for all manner of service businesses. There will be a wave of failures unless the process can be sped up significantly.

Steep Drop in Consumer Spending
To the shock of absolutely nobody, there has been a major drop in the rate of consumer activity—a reduction of 7.5% in March alone. These figures are consistent with all the other bad news reports that have been pouring out over the last few weeks. They will only get worse as the April numbers are collected. It is easy to slip into utter despair at this point, but it will have to be remembered that this remains an artificial recession. It is one that will end to some degree when the business community is allowed to restart. It is obvious there will be a recovery, but the real question is how much of the damage will be considered permanent.

Short Items of Interest—Global Economy

Remdesivir
Remdesivir is an antiviral drug that targets replication mechanisms in viruses to stop them reproducing. Gilead, a California-based biotechnology company, initially developed it to treat Ebola, but it was never approved by regulators. Scientists began looking at using remdesivir to treat the new coronavirus because it had shown it could have an effect on other coronaviruses. They began with small studies before embarking on large, randomized clinical trials, including those run by the World Health Organization and the U.S. National Institutes of Health. Last month, Gilead obtained an "orphan drug" status for remdesivir from the U.S. Food and Drug Administration. That would have extended its intellectual property protections, but it is only reserved for medicines aimed at ailments affecting fewer than 200,000 people in the U.S. The company later backtracked, saying it had done so to speed up approval.

Preliminary results on Wednesday from a trial by the National Institutes for Allergy and Infectious Diseases (NIAID) showed patients who received the drug recovered 31% more quickly, in 11 days, compared with 15 for those who did not take it. The death rate was also lower, 8%, compared with 11%, but that was not statistically significant. Dr. Anthony Fauci, director of the NIAID, told reporters remdesivir was not a "knockout" but that he was "very optimistic." Establishing that a drug can target a replication mechanism inside the virus can lead to other breakthroughs, he said. Fauci compared this to his experience of the HIV epidemic, when a highly toxic drug known as AZT was first tested in the 1980s, showing only a moderate benefit. But that finding heralded breakthroughs in treatment.

Unhelpful Distractions
The twin threat of a global economic meltdown and a pandemic demands the very best the world has to offer if there is to be a recovery from this debacle. There is a need for the very best scientific and medical assessment and research. There is also an equally urgent need to gather the most accurate economic data available so that businesses and consumers know what to expect going forward. In fact, there has been a great deal of this information available to guide decisions across the board. Unfortunately, there has also been a surge of misinformation, obfuscation, unfounded conspiracy theory and exploitation that has interfered with strategies and tactics we are all counting on to get the world back to some semblance of normal. There are always those that twist facts and engage in ridiculous rumor mongering, but in past years, they have mostly been on the fringe. This crisis has thrust that kind of distraction and distortion into the mainstream.

Analysis: At the very start of the epidemic, there were deliberate attempts by the Chinese to hide the issue and deny it was taking place. At first, it was the regional authorities in Hubei province trying to keep the information from their own leaders in Beijing. The national authorities then took up the practice of obfuscation and denial until the crisis grew too large to ignore and cover up. Months were lost in terms of being able to contain the spread. Today, China is awash with international health authorities. They are doing the bulk of the data collection—allowing an accurate analysis at last.

Meanwhile, other nations have struggled with providing accurate assessments and preventing the spread of inaccurate rumors and assertions. There have been dozens of "cures" touted. None of these have been remotely effective and many of them have been more dangerous than the disease itself. The U.S. has not been alone in terms of national leaders engaging in unfounded rumors. Italian leaders asserted that relatives could not pass it to one another. Brazil's President Bolsonaro continues to assert this nothing more than a simple cold. Russian victims of COVID-19 have been categorized as victims of lung disease brought on by smoking and drinking. According to President Vladimir Putin the virus has had nothing to do with it. The politicians have not been alone in the manipulation of facts. Every person with any sort of medical background has been spouting every theory one can imagine.

Most of these rumors and bogus theories are easily dismissed, but there are many aspects of the disease that are not yet understood. It is important that people get clear messages and solid information as they make choices. Does warmer weather, sunlight and humidity kill the exposed virus? The answer is yes, but it takes a little while. Do masks protect you from catching the virus? No, but they keep you from spreading it if you are infected and don't realize it. Are some people more likely to contract the disease than others? Yes—the majority of those infected are either older or have underlying health issues. Obesity has been connected to vulnerability as well. Does limiting crowds affect the spread? Yes and no. It is a matter of playing the odds. The reality is that one can be in a crowd of 1,000 people and be perfectly safe if nobody has the virus. Or, one can contract it if standing next to a single person who is infected. The odds of infection will be greater in a crowd. That provoked the idea of avoiding contact.

The bottom line is that we will all be asked to make a choice very soon. The states are starting to open their economies, but will be doing so in phases and slowly. The burden of controlling the spread is now falling on the population as a whole. We will start to resume old habits but will need to adapt to a different world. We will have to pay attention to hygiene and our own health. Gone are the days when we soldiered on despite feeling sick. We will have to isolate ourselves when in doubt. We will need to pay attention to exposure and learn to use soap and sanitizer liberally. We will also learn to accept new protocols and inconveniences. That may be the hardest transition of all.

Four Things We Are Learning from China
The COVID-19 crisis will forever be linked to China in one way or the other. It is clear that China lied for months about the virus and its spread. Today, China has become a giant laboratory for both the impact of the virus and the impact on the economy. As a result, we are learning some important lessons.

Analysis: One of the key issues for COVID-19 has been the spread of the disease. Two aspects of the infection are the most worrisome. The first is the lengthy incubation period. The flu manifests in a day or so—people know they are dealing with it almost immediately. The COVID-19 virus incubates for up to two weeks before manifesting. That allows people to be infecting others without realizing it. It has also been understood that many of those who have contracted the disease are asymptomatic and never know they have it. The Chinese studies show this applies to three-fifths of those who contract the virus. This has been the prime motivation for the social distancing efforts as everybody has to be assumed to be infected until there is enough testing to determine who really does have the disease.

A second observation coming from China is that vulnerability is very closely linked to four factors. The first is age, but this is not really an issue of chronology. The real vulnerability is a person's overall health. The key is lung health. People who have compromised lungs are most at risk, followed by those with weak immune systems. There has been a strong link to obesity and being in generally poor shape. The young people who are most at risk have been those that smoke or vape or are in areas where air pollution is bad. It is no accident that Wuhan was hard hit—it is one of the most polluted cities in China.

China has also been one of the first nations to see a general reopening of the economy although they have been doing their own version of a phased approach. In Wuhan, the factories are running again and the stores are open. The service sector has been allowed to restart and travel has resumed. There are still limitations on large crowds and assemblies, however. That has eliminated many of the street markets. The economy of the region has indeed shown signs of recovery, but it has been slow. Even a month out from reopening, the recovery has been no more than around 75%. There are still too many restricted activities and the consumer has remained hesitant.

This is the fourth lesson learned thus far. The consumer is indeed ready to get back to normal life, but there is also fear. The polls and observations show that roughly a quarter of consumers and workers are ready to resume old habits and have barely hesitated. They are overwhelmingly male and mostly young. There is another 25% that remains deeply fearful and have been unwilling to engage. They are overwhelmingly female and elderly. That leaves the crucial 50% in the middle. In China, this group is waiting to hear from the medical experts and have placed little faith in the political leaders.

Food Supply Chain Crisis
The COVID-19 crisis has had a varied impact on the supply chain for food. In fact, there has been a radical altering of almost all consumer supply chains. The old system assumed a few things about how people consumed everything from food to other supplies. The previous pattern was one in which home consumption accounted for about 60% of activity and the rest was outside the home. This has been the case with food consumption, household goods and even entertainment. People ate out a lot and therefore food suppliers aimed at the restaurant market. The food that is prepared for this use is not designed for home use. Now that people are eating at home, these restaurant supplies are backing up. In Europe there has been a plea for people to eat more of the kinds of food served in restaurants so that it doesn't go to waste. Packaging has had to change along with distribution patterns.

Analysis: Everything has been oriented to the home now. That has left the suppliers to the institutional community at a loss. The companies that make these products are not set up to supply a different market. There has been a similar crisis in terms of entertainment as people are now consuming everything in their living room as opposed to going out for a night's worth of fun and frivolity.

GDP Numbers Look as Awful as Expected
For the next few months, we are going to have to adopt a new way to look at economic data. Everything is going to look bad and the collapse will be setting records over and over again. The word "unprecedented" has been worn out. The latest Purchasing Managers' Index is deep in contraction, the Credit Managers' Index is at unheard of levels and the GDP for Q1 crashed despite having a good January and half of a good February to work with.

Analysis: It has been noted repeatedly that this has been a manufactured recession. It can only be hoped that lifting restrictions will provoke a recovery that is as swift as the decline has been.

Life (or Something Like It) Goes On
I had made a couple of furtive runs to the grocery store and the drug store, but on Wednesday, I was out for an extended period of time in close proximity to other human beings with whom I had some kind of conversation (although mostly I just listened). I went to get a dental implant to replace a badly cracked tooth that had become unsalvageable. The operation went quite well—all things considered. But this created some challenges.

I had three webinars scheduled that day after the operation, so for about three hours I was babbling away on the economy with a numbed mouth, a gaping hole in my front teeth and a need to use gauze packs whenever I could catch a break. By the time all that was over, I was in no condition to write, so I had to skip an issue this newsletter. These webinars reminded me of the talks I did a few years ago when I was dealing with throat cancer. I was sporting a fetching purple tracheotomy tube that bobbled when I spoke so I had to ask people to overlook the Frankenstein appearance. This time I had to ask for patience with the dental look one generally associates with hockey players.

Who Is Following COVID-19 on the News
The graphs are showing just how much people are interested in what is going on with the COVID-19 virus. The majority of Americans are following the stories, but there are real differences in terms of how much time is being spent, with 21% of those over 60 spending at least three hours a day on the news. As one would expect, the young have been the least interested with only 7% spending more than three hours.


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Monday, 25 May 2020